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Aon Retirement and Investment Blog

Weekly Update - 4 December 2017

MARKET MOVES (week ending December 1, 2017)

  • Global equity markets edged higher in local currency terms over the week. In the Eurozone, political uncertainty held sway after the failure of coalition talks in Germany between the Free Democratic Party and Angela Merkel’s Christian Democratic Union party. The MSCI World Index rose by 0.5% over the week, underperforming S&P 500 which rose by 1.6% over the same period. On a year to date basis, MSCI World has outperformed S&P 500 (20.9% vs. 20.3%).
  • US Large Cap stocks outperformed Small Cap stocks as the S&P 500 rose by 1.6% whilst Russell 2000 rose 1.2% over the week. On a year to date basis, S&P 500 has outperformed Russell 2000 (20.3% vs. 14.6%). Growth stocks underperformed Value stocks last week (0.5% vs. 2.6%) as measured by MSCI USA indices. On a year to date basis, Growth stocks have outperformed Value stocks (27.1% vs. 13.9%.).
  • The 10 year US Treasury yields rose by 2bps to 2.36% whilst the 30 year US Treasury yields was unchanged at 2.76% over the week.
  • The 20 year TIPS yield fell by 1bp 0.63% whilst the 20 year Breakeven rose by 2bps to 1.77%.
  • The Barclays Capital Long Credit Index spread over treasury yields fell by 2bps to 145bps and the Merrill Lynch US Corporate Index spread fell by 1bp to 103bps.
  • The US high yield bond spread over US treasury yields fell by 4bps to 363bps. The spread of USD denominated EM debt over US treasury yields finished the week 1bp lower at 291bps.
  • The S&P GSCI fell by 0.4% in USD terms over the week. The energy sector fell by 0.2% as the price of WTI crude oil fell by 1.0% to US$58/BBL in a week in which the OPEC and counties outside the oil cartel agreed to extend the production cut until the end of 2018. Industrial metals fell by 2.1% as copper prices fell by 2.5% to US$6,809/MT. Agricultural prices rose by 0.4% whilst gold prices fell by 0.5% to US$1,283/ounce.  
  • The US dollar appreciated against the euro and the yen, but depreciated against the sterling. The US dollar depreciated by 1.0% against sterling, ending the week at $1.35/£. US dollar strengthened by 0.6% against the euro, finishing the week at $1.19/€. The Japanese yen fell by 1.1% against the US dollar, ending the week at ¥112.80/$.
Economic Releases
  • The second reading of US GDP growth showed that the economy is growing at its fastest rate in over three years. Quarter-on-quarter GDP growth for the third quarter was revised higher to 3.3% from an initial 3.0% while analysts had forecasted that growth would quicken to 3.2%. Despite the economy expanding at an impressive rate, inflation remains rather muted. The US Federal Reserve’s preferred measure of inflation, the Core Personal Consumption Expenditure price index (which excludes food and energy) met expectations and was unchanged from the previous month’s reading of 1.4%. The Institute of Supply Management’s manufacturing index narrowly missed expectations of 58.3 and contracted by 0.5 points to 58.2. Meanwhile, the US consumers’ outlook remains very buoyant with the Conference Board’s measure of consumer confidence hitting a seventeen year high of 129.5; above forecasts of a slight decline to 124.0 from 126.2
  • In the Eurozone, core inflation data was marginally below market expectations with the consumer price index increasing 0.9% year-on-year. There was a modest upward surprise in the November flash CPI report in Germany where headline inflation came in at 0.3% month-on-month, helping to lift the annual rate to 1.8% from 1.5% which is the highest rate since February. The final Eurozone reading of the November Markit Manufacturing PMI was slightly higher than expected at 60.1, as was Germany at 62.5. Confidence readings were stable, with the Eurozone consumer confidence reading for November remaining in positive territory at 0.1. Economic sentiment was as expected, at 114.6 and up from 114.1 previously. Elsewhere, the GfK consumer confidence index in Germany was in line at 10.7 and just below its recent 16-year high. For October’s unemployment statistics, the Eurozone was 0.1% lower than forecasts at 8.8%, and statistics for the unemployment change over November in Germany were encouraging decreasing by 18k over the month.
  • In Japan, headline annual consumer price inflation came in at 0.2% in October. Core consumer price inflation also rose by 0.2% over the same period, meeting consensus estimates. The jobless rate was unchanged at 2.8% in October. However, the job-to-applicant ratio continued on an upward trend, rising to 1.55 over the same period. Retail sales underperformed expectations of 0.2% growth and fell by 0.2% over the year to October, after increasing by 2.3% in September. The provisional reading for industrial production growth stood at 5.9% over the year to October, up from the previous reading of 2.6% but below the estimated 7.1% increase.
  • In China, Purchasing Managers’ Index releases painted a fairly mixed picture over the week. The official manufacturing PMI rose to 51.8 from 51.6, beating estimates of a fall to 51.4.The Caixin manufacturing PMI dropped to 50.8 which was above consensus estimates of a 0.1 point fall to 50.9.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. Click here for index descriptions.

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